When Bonus Time Is Time to Quit

April is bonus time but for some companies this means resignation time. Companies give annual bonuses to increase motivation and reduce attrition among their employees. But amid the booming job market, sometimes high-performing individuals quit right after getting their annual bonus.

These employees then demand a joining bonus from a new company, thus pocketing a hefty sum. This trend slowed in the downturn of 2009 but has come back in recent months as the demand for skilled manpower exceeds available supply. For companies, such departures are a huge loss especially if they don’t have a succession plan in place. Companies pay bonuses in direct proportion to the employees’ level of responsibility – the more the responsibility, the higher the bonus component in the salary. It’s also closely tied to the company’s and individual’s performance.

In India, the concept of huge performance bonuses took off in the mid-nineties with India’s economic liberalization. It is now widely used by private sector companies in industries such as finance, pharmaceuticals, information technology, and consulting. Companies in these industries structure their compensation in a way that employees know that if they perform well, there is unlimited upside.

This year, Indian companies are expected to pay bonuses equal to an average 10% to 15% of employees’ salary. Some of the highest bonuses are expected in the investment banking industry, where companies are likely to pay as much as 50% to 75% of salary as a one-time annual bonus to senior managers, especially those involved in mergers and acquisitions. Pharmaceutical companies and banks will follow, with bonuses this year of up to 15% of salary. All of these industries face the risk of losing employees soon after bonuses are paid out.